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Increasing demand for carbon credits from developing countries to meet their emissions reduction targets
Developing countries are increasingly implementing ambitious climate change policies and committing to economy-wide emissions targets under the Paris Agreement. However, achieving major reductions presents a substantial challenge for nations still undergoing rapid industrialization and economic growth. Accessing finance through carbon markets like the CDM plays an important role in helping emerging economies meet their emissions goals in a cost-effective way, while also achieving sustainable development.
Many developing countries see carbon trading as an opportunity to attract green investment towards renewable energy, energy efficiency and other low carbon development projects. The carbon credits generated can then be used domestically by industrial facilities to comply with emissions regulations, or sold internationally to offset emissions in other parts of the world.
As more developing economies put a price on carbon and strengthen their climate policies in line with their Paris pledges, the pool of potential buyers of carbon credits from the CDM is set to expand rapidly in the coming decade. Analysis shows meeting the conditional NDC targets of countries could generate demand for billions of additional carbon credits annually by 2030. With early adoption of green growth strategies, nations see an opportunity to leapfrog heavily polluting phases of development and integrate low carbon solutions into long term infrastructure planning. A healthy global carbon market with liquidity provided by players like the EU Emissions Trading System is critical for developing countries to cost effectively achieve their climate and economic goals through mechanisms such as the CDM.
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